My name is Stella. I am in my late 50s with grown adult children. I am set to retire. I was terminated unfairly many years ago and the matter was in court a long time but finally I got a lump sum compensation of Sh4 million.
Needless to say, I was broke for all those years; I didn’t have a job and suffered financial embarrassments severally, so it’s tempting to just use the money in things I have always desired but not been able to do… As you rightly say, there are many countless stories of people who got a lump sum of money and ended up broke just after a few weeks of blowing it all up.
I am seeking advise on the best way I can invest my lump sum, especially now as I go into retirement. I need a plan that will not only allow me to grow my wealth for the future but also take care of my short term and medium term needs as I don’t want to rely on my children.
Alex Kibebe, Founder, Rubiani WealthManagement Ltd;Investment Consultant
To ensure financial stability throughout retirement, invest in products that provide a secure and steady income. Here are three options to consider:
Option 1. Treasury bonds
Treasury bonds are government-backed and offer consistent income. Infrastructure bonds, in particular, are tax-exempt, with current interest rates around 15 percent.
Opt for a long-term bond (15+ years) to secure stable income. Should you need access to your money, Treasury bonds can be sold on the Nairobi Securities Exchange (NSE). However, the fixed income may lose purchasing power over time due to inflation.
Option 2. Insurance annuities
An annuity provides lifelong monthly income in exchange for a lump sum.
No inflation protection: Approx. Sh43,000 to Sh50,000 per month.
With inflation protection (3 percent annual escalation) and a 15-year guarantee period: Approx. Sh33,000 to Sh38,000 monthly.
Compare quotes from insurers to find the best plan for your needs.
Option 3. Blended approach
Divide your funds between Treasury bonds and an annuity for flexibility:
Sh3 million in an annuity (15-year guarantee and 3 percent escalation): Approx. Sh26,000 monthly income.
Sh1 million in Treasury bonds: Approx. Sh75,000 biannually.
This approach provides steady income and access to lump-sum funds if needed.
Reinvest and diversify
As you earn income, reinvest part of it in Money Market Funds or additional Treasury bonds to grow your wealth. Over time, consider diversifying into real estate for enhanced long-term financial stability.
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